The USD/CAD pair saw modest gains around 1.3710, breaking a four-day losing streak in early Asian trading on Thursday. The recovery in the US Dollar (USD) was tempered by diminishing expectations of a Federal Reserve (Fed) interest rate cut this year.
A softer-than-expected US Retail Sales report for May reinforced beliefs that the Fed may lower rates in response to economic indicators, potentially weighing on the USD and Treasury yields. Fed officials continue to emphasize a data-driven approach. New York Fed President John Williams suggested gradual rate reductions as inflation moderates, but refrained from specifying timing for policy adjustments. Meanwhile, Boston Fed President Susan Collins cautioned on premature conclusions regarding inflation reaching target levels.
Market participants await US economic data releases including Initial Jobless Claims, Building Permits, Housing Starts, and the Philly Fed Manufacturing Index, alongside a speech by Fed’s Barkin later in the day. Initial Jobless Claims are projected to decrease to 235K, with a stronger-than-anticipated outcome potentially bolstering the USD and limiting downside pressure on the USD/CAD pair.
In Canada, the Bank of Canada (BoC) expressed concerns over downside risks and potential divergence between Canadian and US economic trajectories in its latest Summary of Deliberations. Following a rate cut on June 5th – the first in four years – investors foresee additional cuts, with markets pricing in nearly 60% likelihood of a quarter-point reduction in the July meeting, according to Refinitiv data.
The outlook for the USD/CAD pair remains influenced by evolving economic data and central bank policy stances, with market sentiment poised for further developments in US and Canadian economic indicators and Fed communications.
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